Correlation Between Taiwan Weighted and Flexium Interconnect

Can any of the company-specific risk be diversified away by investing in both Taiwan Weighted and Flexium Interconnect at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Taiwan Weighted and Flexium Interconnect into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Taiwan Weighted and Flexium Interconnect, you can compare the effects of market volatilities on Taiwan Weighted and Flexium Interconnect and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Taiwan Weighted with a short position of Flexium Interconnect. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Weighted and Flexium Interconnect.

Diversification Opportunities for Taiwan Weighted and Flexium Interconnect

-0.35

Correlation Coefficient

Taiwan Weighted  Flexium Interconnect

Very good diversification

The 3 months correlation between Taiwan and Flexium is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Weighted and Flexium Interconnect in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Flexium Interconnect and Taiwan Weighted is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Taiwan Weighted are associated (or correlated) with Flexium Interconnect. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Flexium Interconnect has no effect on the direction of Taiwan Weighted i.e., Taiwan Weighted and Flexium Interconnect go up and down completely randomly.

Pair Corralation between Taiwan Weighted and Flexium Interconnect

Assuming the 90 days trading horizon Taiwan Weighted is expected to generate 0.68 times more return on investment than Flexium Interconnect. However, Taiwan Weighted is 1.47 times less risky than Flexium Interconnect. It trades about 0.14 of its potential returns per unit of risk. Flexium Interconnect is currently generating about -0.2 per unit of risk. If you would invest  2,118,771  in Taiwan Weighted on September 5, 2024 and sell it today you would earn a total of  183,975  from holding Taiwan Weighted or generate 8.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.77%
Values	Daily Returns

Taiwan Weighted  vs.  Flexium Interconnect

Pair Trading with Taiwan Weighted and Flexium Interconnect

The main advantage of trading using opposite Taiwan Weighted and Flexium Interconnect positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taiwan Weighted position performs unexpectedly, Flexium Interconnect can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Flexium Interconnect will offset losses from the drop in Flexium Interconnect's long position.

The idea behind Taiwan Weighted and Flexium Interconnect pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.